Corporate banking
Global Industry Primer
What is the banking industry?
Industry definition
Banks are financial institutions that, in their simplest form, accept
deposits and use these funds to make loans. They offer these
loans in return for an interest payment and may charge borrowers
different rates based on an assessment of the borrowers’ ability to
pay back the loan. This risk-based pricing is determined through
credit scoring. Banks also enable buyers and sellers to conduct
transactions through a variety of payments methods for a fee,
offering them convenience, risk minimization and security. Interest
payments on loans, called interest income, as well as fees collected
from money transfers, payments and other services, called fee or
transaction income, form the majority of a bank’s revenue.
Banks typically have two major lines of business: retail and
corporate, or wholesale. The retail line of business services the
needs of individual customers and small businesses whereas
the corporate line of business serves the needs of larger
companies. A few banks have an additional line of business
called investment banking, which includes a variety of services.
These services include underwriting; acting as an intermediary
between an issuer of securities and the investing public; facilitating
mergers and other corporate reorganizations; and acting as a
broker for institutional clients. Most banks typically focus on
retail and corporate banking lines of business. There are several
banks, however, that focus on all three lines of business and are
typically referred to as universal banks.
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Corporate banking
Primary corporate banking activities include:
• Loans and other credit products. Typically representing the
biggest area of business within corporate banking and one
of the largest sources of profit and risk
• Treasury and cash management services. Managing a
company’s working capital and currency conversion
requirements
• Equipment lending. Customizing loans and leases for a range
of equipment used by companies in diverse sectors, such as
manufacturing, transportation and information technology
• Trade finance. Lending for trade purposes, issuing letters of
credit, factoring, export credit and insurance
Secondary corporate banking activities include:
• Commercial real estate. Providing real asset analysis, portfolio
evaluation, debt and equity structuring
• Employer services. Providing payroll and group retirement
plans, typically offered by specialized affiliates of a bank
Banks, through their investment banking arms, also offer related
services to corporate clients, including underwriting, facilitating
mergers and other corporate reorganizations, asset management,
and acting as a broker for institutional clients.
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Key segments
Banks and firms in the banking industry can be broadly classified into the following segments:
Segment
Banks, credit unions
and
co-operatives
Non-bank credit institutions
Central banks, regulators
and monetary authorities
Infrastructure, processors
and operational firms
Non-traditional financial
technology (FinTech)
service providers
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Definition
Deposit-taking institutions of all sizes, from global
banks with complex operations to simple credit
unions. They include:
• Commercial banks
• Credit unions
• Savings institutions
• Globally diversified financial institutions
Firms that extend loans to consumers and
corporations. They include:
• Business credit institutions
• Personal credit institutions
• Federal credit agencies
• Mortgage bankers and brokers
Institutions that manage a country’s or economic
union’s monetary policy, issue currency, regulate
and supervise the banking industry, and provide
financial and banking services for governments and
commercial banking systems
Firms that provide vital financial infrastructure
necessary for transmitting and processing financial
transactions among various parties. They include:
• Back-office processing outsourcers
• External data providers
• Payment networks
Technology firms or firms from other industries with large
customer bases that have launched financial products
and services, primarily in the retail banking space, that
compete with traditional banks. They include:
• Full-service branchless banking
• Peer-to-peer lending and funding platforms
• Digital wallets and payment and transfer services
• Remittance services
• Personal financial and investment
management services
Examples
• Bank of America-Merrill Lynch
(Commercial bank)
• Industrial and Commercial Bank of China
(Commercial bank)
• Citigroup (Globally diversified financial institution)
• Lloyds TSB (Commercial bank)
• Standard Chartered Bank (Commercial bank)
• State Bank of India (Commercial bank)
• Glasgow Credit Union (Credit union)
• Yorkshire Building Society (Credit union)
• Deutsche Leasing (Business credit institution)
• American Express (Personal credit institution)
• Fannie Mae (Mortgage banker and broker)
• Federal Reserve, USA (Central bank)
• European Central Bank (Central bank)
• Financial Services Authority, UK (Regulator)
• Bank of England (Monetary authority)
• Reserve Bank of India (Central bank)
• FIS (Back-office processing outsourcer)
• Fiserv (Back-office processing outsourcer)
• Experian (External data provider)
• SWIFT (Payment network)
• Fidor Bank (Full-service branchless banking)
• Lending Club (Peer-to-peer lending and
funding platform)
• Venmo (Digital wallet and payment and
transfer service)
• M-Pesa (Digital wallet and payment and
transfer service)
• Remitly (Remittance service)
• Mint (Personal financial management service)
• Betterment (Investment management service)
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Key performance indicators (KPIs)
The three primary areas of analysis and comparison are financial
performance, operational performance and customer performance.
The disparate nature of banks in different segments affect
Area Definition
Financial Financial performance is a subjective
performance measure of how well a firm can use
assets from its primary mode of
business and generate revenues.
Operational The operational performance measures
performance are not usually obtained from company
accounts, but from consultant or analyst
reports from central banks or regulators.
Customer service Customer service performance can take
performance several forms, which aim to measure the
level and quality of staff interaction with
clients. Comparisons of banks’ customer
service levels are frequently carried out
by the banks themselves, by analysts and
sometimes by industry regulators.
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comparisons; the data associated with each key term should be
taken in context according to the bank’s segment, size and
other determining factors.
Assessments and measurements
Assessment includes the following five categories:
• Growth. Total assets, total revenue, net income
• Cash management. Loan-to-assets ratio, loan-to-deposit ratio
• Cost management. Cost income ratio, selling, general and administrative
expenses (SG&A) margin
• Asset management. Return on equity (ROE), return on assets (ROA)
• Soundness. Tier 1 capital percent, non-performing loans percent,
capital-to-asset ratio
• Product performance
• Channel performance
• Risk performance
• IT performance
• Employee performance
• Branch performance
• Front-office performance
• Payments performance
• Customer service performance
Some of the measures include:
• Customer satisfaction indices
• Customer churn
• Customer sentiment as expressed by internet client tracking
• Average income per customer
• Number of investigations
• Customers per employee
• Number of ATMs
• Revenue per customer
• Customers per bank
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 Corporate banking
What drives performance in the
banking industry?
Challenges
There are powerful forces reshaping the banking industry and
affecting its revenue and profit margins:
• Volatile global economic environment. Geopolitical instability
and tension within the Middle East; dangers of a prolonged
global economic stagnation; low interest rates in many markets;
and a sluggish Eurozone recovery
• Evolving customers. Digitally astute, mobile and social
customers who expect pervasive access to services; customers
who demand customized and engaging experiences and
offerings at lower price points
• Digital disruption. The entrance of non-traditional competition,
offering financial products and services with better value and
customer experiences; an unbundling of the banking value chain
on one hand and the integration of pieces of the banking value
chain with other value chains, like e-commerce, on the other
• Complexity and cost. An increasing complexity in banking
operations, operating models, technology architecture,
which often don’t reflect business realities; a diverse and
complicated ecosystem of platforms, vendors and partners
that need to be managed
• Ever-changing regulations. Emboldened regulators, ushering
in a new era of increased oversight and capital requirements;
banks being subjected to regular stress tests; increasing
challenges in managing operational and financial risk
• Security and fraud concerns. Banks’ integral role in the
financial ecosystem, coupled with a rapidly evolving technology
environment, exposes them to more security breaches and
attacks; increasing rate and complexity of fraud, especially
through digital channels
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Opportunities
Changing market dynamics represent tremendous growth
potential for banks:
• Demographics. An increasingly larger number of younger
customers are entering the financial system; government
programs are bringing under-banked and unbanked
populations into the formal financial system
• Asset growth. A shift is happening in wealth to younger
generations, coupled with strong growth in wealth in emerging
markets; a strong overall growth in global financial assets
• Technology. The digital pervasiveness of consumer
technology; an abundance of data and the opportunity to
derive value from it; advances in enterprise technology that
enable increased agility, efficiency and lower costs like cloud,
application program interfaces (APIs) and blockchain
Strategic imperatives
To drive sustainable shareholder value, banks are focusing
on three imperatives to maintain a competitive advantage:
• Create a customer-focused enterprise. Optimize data and
leverage analytics and insights to build new ways to engage,
collaborate and adapt to new expectations and behaviors,
and drive profitable growth
• Drive agility and operational efficiency. Deliver new products
and services quickly to drive competitive differentiation while
improving operating efficiencies and cost structures that
increase flexibility
• Optimize risk and compliance. Maximize return on equity,
combat fraud, and mitigate operational risk and security
threats while achieving regulatory and compliance objectives
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 Corporate banking
What is the competitive landscape
for banks?
The competitive landscape of the banking industry is different
from country to country. For example, in the US there are still
thousands of banks of different sizes and types catering to
different market segments despite significant consolidation, while
in Australia, there are fewer than a hundred banks. Despite these
differences, market share concentration tends to be very high
in the banking industry due to economies of scale and scope.
Additionally, banking in many countries is often dominated by
state-owned or formerly state-owned and recently privatized
banks. For example, China’s large banks are all state owned,
as are many of the larger banks in India, Brazil and Russia.
In the last few decades, strong growth in global trade and
commerce, coupled with a significant number of mergers and
acquisitions, has led to the rise of large global banks. These
global banks have operations in multiple lines of business and
geographical markets. The credit crisis of 2008 and subsequent
sluggish global economic recovery have, however, forced many
of these global banks to scale back operations in certain lines
of business and geographies.
While governments and regulators worldwide are trying to lower
the barriers to entry, it’s deliberately difficult to set up a new
bank because of the inherent risks of a failure, which, in turn,
affect economic stability. For this reason, the banking industry
remains licensed to a high degree, with only a small number of
new licenses typically issued every year. The Australian banking
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system, for example, only releases four or five new licenses
each year. However, market entry sometimes occurs by buying
a small bank to gain a license and basic infrastructure, then scaling
up the business.
Banks are increasingly facing a lot of competition from startup
technology firms, as well as companies from other industries like
telecom, e-commerce and internet aggregators. A dip in bank
trust levels since 2008, especially in developed markets, coupled
with the increasingly easy and cost-effective access to high-quality
enterprise technology and availability of funding, has resulted in
the emergence of FinTech firms. These FinTech firms are competing
with banks in focused service lines like lending, payments and
personal financial and investment management, as well as
full-fledged digitally native banks. Technology has enabled many
of these firms to increase their speed to market and ability to
scale across many geographical markets. Also, the evolution of
regulatory oversight over these firms is still far from mature,
resulting in FinTechs often enjoying lower levels of regulation
when compared to traditional banks. Additionally, telecom and
internet firms with large existing customer bases have launched
financial services closely tied to their value chains, such as
payments and digital wallets, in competition with banks.
Apart from FinTech firms, there are also plenty of traditional
substitutes to the banking industry. Banks face strong
competition from specialized non-banking financial services
companies in most other service lines like fixed-income
deposits, consumer lending and payments.
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Major banks
Some of the major banks in different markets include:

Geography Banks

North America • Bank of America • Citigroup

• JP Morgan Chase & Co. • Royal Bank of Canada

Europe • HSBC • Crédit Agricole

• BNP Paribas • Banco Santander
• Royal Bank of Scotland

Japan • Mitsubishi UFJ Financial • Sumitomo Mitsui Financial Group

• Mizuho Financial

China • ICBC • Bank of China

• China Construction Bank • Agricultural Bank of China

Asia Pacific • National Australia Bank • DBS Bank

• ANZ Banking Group • Maybank
• Westpac • Bank Mandiri
• State Bank of India • Oversea-Chinese Banking Corporation
• ICICI Bank

Latin America • Itaú Unibanco • Banco Bradesco

• Banco do Brasil • Caixa Econômica Federal

Middle East and Africa • Standard Bank Group • FirstRand

• National Commercial Bank • Emirates NBD

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 Corporate banking

How are banks organized and what are the key functions?

The core functions of a bank are loosely split between front-office and back-office functions. These front and back distinctions
are, of course, permeable. Risk management, for example, is a critical function that underpins most banking activities. The core
executive titles and functional areas specific to banking are detailed below:

Department Primary role Responsibilities Titles and roles

Front office In banking, front-office staff deal
directly with clients through a branch
office or indirectly through internet
banking or a call center.
• Customer management • Head of Sales
• Customer sales and servicing • Customer Care Executive
• Marketing and business development • Branch Manager
• Product development • Chief Marketing Officer

Back office— Core banking functions include
core banking deposit, loan and credit processing
capabilities. They interface with the
general ledger systems.
• Distribution services • Chief Operating Officer
• Financial management • Chief Information Officer
• Retail products • Retail banking line-of-business
• Fulfillment (LOB) executives

Back office— This back-office function deals with • Cash management • Head of Payments
payments and the processing of payments, such as • Merchant services • Head of Clearing
transactions the transfer of funds between parties
• Payments • Head of Liquidity Management
through a variety of different means.

Risk The various risk management functions • Financial controls • Chief Risk Officer
management ensure the bank’s operations can • Information security and privacy • Chief Compliance Officer
continue with an acceptable level of
• Risk management, including credit, • Chief Information Security Officer
risk and the allocation of capital and
market and operational
resources are optimized.

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Where can I learn more about the banking industry and what IBM offers?
Educational resources
Learn and build your eminence
• Banking Industry Solutions | Industry Solution Sales Kits
• Know Your Industry | Banking
• Learn about the banking industry | Banking Industry Training
• Understand market trends | Banking bluemine
• Participate in the Banking Solutions Community Calls;
weekly on Wednesdays at 9:00 AM Eastern Standard Time (EST) | Call details and replays of calls

Connect and build your personal brand

• Join IBM’s banking community | Banking CollaborationHub
• Know key IBM banking contacts | FSS Contacts
• Follow the latest on Twitter | IBM Banking Twitter Account
• Join the Financial Services in a Cognitive Era group on LinkedIn | LinkedIn
• Share insights | IBM Banking and Financial Markets-Insights on Business Blog

Client-facing links you can share

• Bookmark the banking home page | IBM.com-Banking Home Page
• Subscribe to videos | YouTube channel - IBM Banking
• Showcase banking success stories | Case studies on ibm.com

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